The Big Picture Archives - Page 8 of 34

March 27, 2017

Is the Coalition prepared to die defending the housing bubble?

I don’t always agree with David Llewellyn-Smith but love his pithy style. Here he takes the Turnbull government to task over their housing and immigration policies.

Cross-posted with kind permission from Macrobusiness:

….Because that’s what it looks like.

We all know that the Coalition hearts the housing bubble. Everything it does spells undying infatuation:

protecting property tax rorts;

focusing only on supply-side reform and even then doing pretty much nothing;

shelving any and all policy reform that might disrupt its smooth and burgeoning progeny, plus

running a staggeringly huge immigration program despite widespread economic damage.

It’s the last point that I want to focus on today because that’s the one where Coalition bubble-love rubber hits the road for its electoral prospects.

Since the WA election, Coalition polling has been devastated. A little bounce in Newspoll has been wiped out by landslides against the government in Ipsos and Essential polls. Moreover, the carnage has been just as apparent in the Coalition’s primary vote which has hemorrhaged voters to One Nation. The latter has been unaffected by the WA election despite doing less well than expected.

The major change in politics since the state result has been a commitment by One Nation to never ally with the Coalition again. The fringe party has realised that such pragmatism is lethal to its prospects.

This simple truth seems yet to have filtered through to the federal Coalition. As One Nation takes a material portion of its vote, and that vote refuses point blank to ally with it, there is ZERO chance of the Coalition winning a federal election ever again, and probably not at the state level either. While One Nation exists in this form, the Coalition has effectively ceased to exist as a political force.

One might have thought that the prospect of NEVER WINNING ANOTHER ELECTION might be enough to trigger some soul-searching in the party. And it has done a little. Do-nothing Malcolm has switched from toying with random ideas to deploying random ideas but it’s still all at the margins and is meaningless:

18c reform won’t move the needle;

contradictory coal and hydro investment won’t move the needle;

a retrograde company tax cut won’t move the needle;

a supply-side housing affordability Budget won’t move the needle.

All together they might nudge it a little but it won’t be enough. Nothing like it.

Indeed, I’ll go so far as to say that the Coalition could do the following immensely popular policies and it would still get clubbed from office:

abolish negative gearing;

install gas reservation;

offer tax cuts.

The problem is that these are all cyclical fixes for what is a structural shift to One Nation driven by one very simple truth: Australians are done with high immigration.

That’s Pauline Hanson’s primary appeal. She makes little sense on other issues and is bat shit crazy on many. But her one great power, the one that vibrates deep in the bowels of every Australian that is marginalised by house prices, falling wages, can’t get a job, is fearful of Islam or just a bigot, or is just plain pissed off at the direction of the country, is the deep and legitimate truth that running a mass immigration program during a period of high unemployment is treasonous economics.

Thus there is only one policy shift that can change the Coalition’s fate and it is as plain as the nose on Pauline Hanson’s face: cut immigration and cut it hard.

Cutting immigration back to 70k per year or less would completely shift every electoral parameter as the Coalition:

finally had a housing affordability policy to put up against Labor’s negative gearing reforms;

finally had an environmental policy to put up against the immigration-hypocritical Greens;

could gut One Nation overnight and go to work on wiping it out by exposing the loons as weakening polls divide them.

This one policy shift would put the Coalition instantly in the running for the next election even if it were Do-nothing Malcolm that did it.

So, why does the Coalition suffer from such suicidal bubble-love that it can’t or won’t grab this lifeline?

many Coalition MPs are personally leveraged to the bubble so they’ve their own financial interests in mind;

as yesterday’s revelations about the MPs that prevented negative gearing reform showed, they are political hacks with terrible policy judgement;

they are bereft of the intellectual depth and corporate memory to contemplate alternative economic models. Cutting immigration to 70k would take pressure off eastern capital house prices enabling further rate cuts and a lower currency;

the Howard and Costello myths make this even worse,

and, the Coalition is closely wedded to the business interests in banking, retail and construction that benefit from high immigration even as the net result is negative for the wider economy.

I’ll add one more factor which appears increasingly important. Career politicians don’t care for their own political party or its nominal values as they used to. The dominant ideology of unglued self-interest comes with the wonderful fringe benefit of not having to take responsibility for anything. Contemporary Coalition MPs see party membership as a gravy train to private sector riches in board positions, lobbying roles and other forms of ‘control fraud’ in the very sectors that thrive on the bubble. So, for them, arbitraging the fate of the party for personal gain is all just a part of being a good liberal.

Backing self-interest used to work in political forecasting but does this rabble even have that in them?

March 26, 2017

The Chip on China’s Shoulder | WSJ

…..Fully 70% of Chinese television dramas have plots related to war with Japan, he tells us, and in 2012 alone 700 million imaginary Japanese were killed in Chinese movies. Mr. French’s findings on this count are ominous: “Up until the present day,” he writes, “East Asia has never proven large enough for two great powers to coexist peacefully.”

….he points to the enormous demographic shift under way in China as the population ages and birthrates fall far short of replacement. China is on course to have more than 329 million people over the age of 65 by 2050, while the younger, working-age population is set to plummet. The inexorable aging of the population will, Mr. French predicts, restrain the country’s ability to project power in the future. It will halve the size of the military-age population while saddling workers and the government with enormous expenses to care for the elderly. He suggests that the incredible pace with which China is currently trying to assert control over the South China Sea is driven by President Xi Jinping’s awareness that the country has a window of at most 20 or 30 years before demographics catch up to it and such an expansion becomes impossible.

China’s attempt to dominate East Asia (if not Asia) brings it into direct conflict with Japan. Expect increased militarization of Japan as China attempts to expand its sphere of influence. The Korean peninsula and Vietnam are simply sideshows.

Source: The Chip on China’s Shoulder – WSJ

March 23, 2017

Who controls the media? Google is about to find out

From The Age:

Google’s advertising crisis went global after some of the biggest marketers including AT&T and Johnson & Johnson halted spending on YouTube and the internet company’s display network, citing concern their ads would run alongside offensive videos.

The controversy erupted last week after the London-based Times newspaper reported that some ads were running with YouTube videos that promoted terrorism or anti-Semitism.

….Search represents the lion’s share of Google’s advertising revenue, which totalled $US79.4 billion ($104 billion) last year.

Google is about to discover who controls media. Noam Chomsky was right all along. The media is not controlled by shareholders — nor the Illuminati as conspiracy theorists would have us believe — but by advertisers.

No private media outlet is going to bite the hand that feeds and run material that offends its biggest advertisers. That explains why mainstream media, instead of being at the forefront, were the last to discover that tobacco smoking is harmful to your health. And still haven’t awoken to the enormous social damage caused by alcohol. Because Tobacco and Alcohol were (and in the latter case still is) some of the biggest advertisers in mainstream media.

Watch how quickly Google responds to the current furore by changing its censorship of offensive content.

March 19, 2017

Don’t Believe the Hype: China’s North Korea Policy is All Smoke and Mirrors

Dr. Van Jackson is an Associate Professor at the Asia-Pacific Center for Security Studies, and author of the book Rival Reputations: Coercion and Credibility in US-North Korea Relations:

Social media is abuzz with news that China’s Ministry of Commerce announced it will suspend coal imports from North Korea as part of U.N. Security Council sanctions enforcement for the North’s most recent nuclear and ballistic missile tests in violation of prior Security Council resolutions. So China is finally standing arm-in-arm with the United States and international community to actually do something about North Korea. That’s great, right? Wrong.

China’s suspension of coal imports is smoke and mirrors; an act of geopolitical misdirection. The United States is being played, as it has in the numerous past instances when China supported sanctions resolutions against North Korea at the United Nations only to fail to implement them….

….China’s “emotions” toward North Korea don’t drive its policy. China has a long tradition of paying lip service toward cooperation with the United States and the international community while largely failing to apply any meaningful pressure on North Korea, and for good reason: It doesn’t want a nuclear-armed neighbor on its border to become a nuclear-armed enemy. We ignore China’s enduring strategic interests in North Korea at our peril.

Source: Don’t Believe the Hype: China’s North Korea Policy is All Smoke and Mirrors

March 19, 2017

The Catch-22 in U.S.-Chinese Relations | Carnegie-Tsinghua Center

Paul Haenle served as the director for China, Taiwan, and Mongolian Affairs on the National Security Council staffs of former presidents George W. Bush and Barack Obama prior to joining Carnegie:

When, at the no-necktie summit in California in 2013, Xi [Chinese President Xi Jinping] put forward the [strategic partnership] concept, he mentioned three foundational principles: no conflict and no confrontation; mutual respect, including for both countries’ core interests and major concerns; and win-win cooperation. The United States has long reiterated that the relationship should be based not on slogans but on the quality of the cooperation.

….But China’s call for respect for core interests has been a showstopper in Washington, seen as an indication that what China really seeks is U.S. concessions on areas of long-standing disagreement between the two countries.

Historically China has defined its core interests as including Taiwan, Tibet, and Xinjiang (the Uyghur Autonomous Region) but these have lately expanded to include the South China Sea (9-dash line) and Diaoyu (Senkaku) islands administered by Japan.

Vladimir Lenin advocated: “Probe with a bayonet. If you meet steel, stop. If you meet mush, then push.”

Any attempt at conciliation would encourage further expansion.

Source: The Catch-22 in U.S.-Chinese Relations – Carnegie-Tsinghua Center – Carnegie Endowment for International Peace

March 18, 2017

The Road to a Free Europe Goes Through Moscow | POLITICO

From James Kirchick, author of The End of Europe: Dictators, Demagogues and the Coming Dark Age:

….The West wants peace and Russia wants victory. These desires are incompatible. Those who cherish liberal democracy and wish to see it endure must accept the fact that a Russian regime is once against trying to debilitate and subvert the free world. While Russia today may not be as conventionally strong an adversary as it was during the Cold War, the threat it poses is more diffuse. Russia is as much an enemy as it was a generation ago, and we need to adopt a more hardheaded, adversarial footing and mentality to defeat it. In a globalized world where the cancerous influences of Russian money and disinformation can more easily corrupt us than when an Iron Curtain divided Europe, and where the ideological terrain is more confusing than the Cold War’s rigid bipolarity, containing Russia presents different challenges than it did a generation ago, not the least of which is maintaining Western unity against a more ambiguous adversary skilled at fighting asymmetrically. We must steel ourselves once again for a generational, ideological struggle in defense of liberal values and open societies and avoid self-inflicted wounds. Never during the Cold War, for instance, was there such a traumatic break within the Western political alliance as Britain’s departure from the European Union—nor, for that matter, did an overtly pro-Russian leader ever capture the presidency of the United States.

Source: The Road to a Free Europe Goes Through Moscow – POLITICO Magazine

February 19, 2017

Michael Gove on Brexit, productivity and innovation

January 30, 2017

Gordon Gekko’s garden | On Line Opinion

A thought-provoking opinion from John Wright who lectures in philosophy at the University of Newcastle:

At the end of our street is a community garden. Many of the local residents have their own box in which they grow tomatoes, onions, lettuce, and so on. It works on a culture of trust and sharing. There is no fence around the garden. It is understood that if someone needs, say, a few carrots from a public box they are free to help themselves.

But recently, it has not been going well. Today I went down to get a lettuce from the box my partner and I had been tending, and its entire contents had gone. Inquiries revealed this had been happening to other people’s boxes. The problem is so widespread many have decided to pull out of the community garden altogether.

Of course, when compared to the great events that befell the world in 2016, this is hardly head-line news. But I also think it exemplifies, in a very simple way, factors that have led to some of the larger troubles of our societies.

….I’m sure we have all encountered people who take the view: “In this world, it’s each person for themselves. Only a mug would do something for the good of the community.”

Of course, it’s only a small number who take this view. But so many boxes have been cleared out that a lot of residents have given up and decided to withdraw from the garden.

What all this illustrates is just how fragile a sense of community, co-operation and the common weal can be, and how easily it can be replaced by: “It’s each person for themselves”.

Lately Donald Trump’s “America First” foreign policy catch-phrase, and Theresa May’s promise to “Put Britain First” in Brexit negotiations, have received a lot of media coverage.

What these attitudes reflect is a lack of community between states, not just individuals sharing a vegetable patch. For too long, some players in the international community have displayed a self-interested view, benefiting from the international community at the expense of others. Whether this be NATO members failing to meet their defense budget commitments, instead relying on the US security umbrella, or China and Japan furthering their own economic interests, running large trade surpluses while subverting the balancing mechanism of floating exchange rates, at the expense of their trading partners.

Similarly interest groups within states have furthered their own agendas at considerable cost to their fellow-citizens. Global corporations, for example, profited from offshore manufacturing without consideration of the millions of manufacturing jobs lost and ultimate hardship in their own country.

In his 1982 book The Rise and Decline of Nations, Mancur Olson highlighted the dangers of self-interest groups within society and how redistributive struggles, where insiders manipulate the system at the expense of productive efforts, can lead to economic decline. He attributed the rise of Japan and Germany after WWII, relative to the UK, to the absence of pressure groups in the former which were largely wiped out during the war.

Trump’s campaign promise to “drain the swamp” would similarly restore growth to the US. But pursuit of self-interest on the international stage, instead of strengthening the international community, is likely to achieve exactly the opposite.

Source: Gordon Gekko’s garden – On Line Opinion – 24/1/2017

January 30, 2017

How to survive the next four years

Donald Trump

We are entering a time of uncertainty.

Donald Trump started his presidency with a continuation of the confrontational approach that he exhibited throughout his campaign, with scant regard to unifying the country and governing from the middle. Instead he has signed off on two controversial oil pipelines that, while they would create jobs, have met fierce opposition and are likely to polarize the nation even further.

Subtlety is not Trump’s strong point. Expect a far more abrasive style than the Obama years.

Trump also signed off on constructing a wall along the border with Mexico. Again, this will create jobs and slow illegal immigration — two of his key campaign promises — while harming relations with the Southern neighbor.

Another key target is the trade deficit. The US has not run a trade surplus since 1975. Expect major revision of current trade agreements like NAFTA, which could further damage relations with Mexico, and a slew of actions against trading partners such as China and Japan who have used their foreign reserves in the past to maintain a trade surplus with the US. Floating exchange rates are meant to balance the flow of imports and exports on current account, minimizing trade surpluses/deficits over time. But this can be subverted by accumulating excessive foreign reserves to suppress appreciation of your home currency. Retaliation to US punitive actions is likely and could harm international trade if not carefully managed.

Apart from wars, Trump and chief strategist Steve Bannon also seem intent on provoking a war with the media, baiting the press in a recent New York Times interview:

Bannon delivered a broadside at the press…. saying, “The media should be embarrassed and humiliated and keep its mouth shut and just listen for a while.” Bannon also said, “I want you to quote me on this. The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States…..”

Trump and Bannon’s strategy may be to provoke retaliation by the media. One-sided reporting would discredit the press as an objective source of criticism of the new presidency.

On top of the Trump turmoil in the US, we have Brexit which threatens to disrupt trade between the UK and European Union. If not managed carefully, this could lead to copycat actions from other EU member states.

Increasingly aggressive steps by China and Russia are another destabilizing factor — with the two nations asserting their global power against weaker neighbors. Iran is another offender, attempting to establish a crescent of influence in the Middle East against fierce opposition by Saudi Arabia, Turkey and their Sunni partners. Also, North Korea is expanding its nuclear arsenal.

We live in dangerous times.

But these may also be times of opportunity. Trump has made some solid appointments to his team who could exert a positive influence on the global outlook. And confrontation may resolve some long-festering sores on both the economic and geo-political fronts.

How are we to know? Where can we get an unbiased view of economic prospects if confrontation is high, uncertainty a given — the new President issuing random tweets in the night as the mood takes him — and a distracted media?

There are two reliable sources of information: prices and earnings. Stock prices reflect market sentiment, the waves of human emotion that dominate short- and medium-term market behavior. And earnings will either confirm or refute market sentiment in the longer term.

As Benjamin Graham wrote:

“In the short term the stock market behaves like a voting machine, but in the long term it acts like a weighing machine”.

In the short-term, stock prices may deviate from true value as future earnings and growth prospects are often unclear. But prices will adjust closer to true value as more information becomes available and views of earnings and prospects narrow over time.

We are bound to experience periods of intense volatility over the next four years as hopes and fears rise and fall. These periods represent both a threat and an opportunity. A threat if you have invested on hopes and expectations rather than on solid performance. And an opportunity if intense volatility causes prices to fall below true value.

It will pay to keep a close watch on technical signals on the major indexes. As well as earnings growth in relation to index performance.

Also, keep a close eye on long-term indicators of market risk such as the Treasury yield curve and corporate bond spreads. These often forewarn of coming reactions and will be reviewed on a regular basis in future newsletters.

December 12, 2016

Factors that Could Derail Equity Markets | Bob Doll

Bob Doll

From Bob Doll at Nuveen Investments:

….Although we have a generally positive view toward the economy, earnings and equity markets, we think it is worth pointing out some possible risks given how quickly and how far markets have moved higher over the past month. To us, the main risk to equity markets is the surge in government bond yields and the rising value of the U.S. dollar. Higher bond yields could create a drag on equity valuations and a higher dollar could put pressure on corporate earnings.

If the current advances in yields and the dollar moderate, equity markets should not experience much damage ….we expect any equity market sell-off resulting from a possible yield/dollar spike to be short-lived.

We are also watching possible political negatives from Donald Trump’s presidency, such as escalating geopolitical turmoil, currency wars with China or anti-immigration/anti-globalization trends. Additionally, investors may become wary of improving sentiment and less attractive valuations.

….Unlike the period since the end of the Great Recession, market sell-offs have been brief and followed quickly by strong risk-on moves. As a result of this shift and a seemingly more solid economic and earnings backdrop, we think it makes sense to retain overweight positions in equities.

I am cautiously bullish. A lot of good could come out of Republican control of both Congress and the Senate, including a revision of the corporations tax code and a more cautious approach to globalization.

The dangers are high stock valuations, with the potential for a backlash if earnings falter or risk levels spike, and low business investment that could hurt future growth. I still consider a Trump administration an additional risk factor. Trump has made some solid appointments, like the highly-regarded Mike Mattis (pleased to see Michael McFaul, former Obama point man on Russia, supporting the appointment) but still has the potential to do some crazy stuff as Bob pointed out.

Source: Weekly Investment Commentary from Bob Doll | Nuveen